Factors that drive down the Dow Jones Industrial Average, or DJIA, include increased oil prices, natural calamities and economic slump in the U.S or other countries, states The Nest. Generally, the drop is due to fear or uncertainties. The factors may affect one or several members of the DJIA.
Investors are generally cautious when investing in the highly volatile components of the DJIA, notes The Nest. Normally, potential investors evaluate the fundamental strengths of companies before investing. The Dow may slump when current holders sell their stock due to market limitations, such as decreased profits, or when the companies engage in wrongdoing.
The DJIA may trade low due to terrorism or war, states Investopedia. Investors may pull out of the market when they feel terrorists may strike the country, lowering the demand for stocks and reducing prices. Furthermore, new investors are unlikely to enter the market.
A small drop in the Dow may trigger investors to hold onto their shares or buy more in anticipation of earning a profit when the market picks up, explains The Nest. A significant drop may imply that there exists a serious economic crisis that results in a reduction in the value of stocks. In response to perceived crisis, consumers spend frugally, resulting in low economic development, rocketing unemployment rates and low national output.